Philippa Kaur

WITH EYES like saucers, nine-year-old Ralph Miles slowly removes his Quest 2 headset. “It was like being in another galaxy!” he exclaims. He has just spent ten minutes blasting alien robots with deafening laser cannons—all the while seated silently in the home-electronics section of a London department store. Sales assistants bustle around, advertising the gear to take home today. “That would be sick!” enthuses Ralph. “Don’t get him started,” warns his dad.Children are no longer the only ones excited about “extended reality”, a category which includes both fully immersive virtual reality (VR) and the newer technology of augmented reality (AR), in which computer imagery is superimposed onto the user’s view of the world around them. Nearly every large technology firm is rushing to develop a VR or AR headset, convinced that what has long been a niche market may be on the brink of becoming something much bigger.Meta, Facebook’s parent company, has sold perhaps 10m Quest 2 devices in the past 18 months and will launch Cambria, a more advanced headset, later this year. Microsoft is pitching its pricier HoloLens 2 to businesses. Apple is expected to unveil its first headset near the end of the year, and is said already to have a next-generation model in the pipeline. Google is working on a set of goggles known as Iris. And a host of second-tier tech firms, from ByteDance to Sony and Snap, are selling or developing eyewear of their own.The tech giants spy two potentially vast markets. One is the kit itself. Only around 16m headsets will be shipped this year, forecasts IDC, a data company (see chart 1). But within a decade their sales may rival those of smartphones in mature markets, believes Jitesh Ubrani of IDC. “Some people ask, ‘Do you think this is going to be as big as what smartphones created?’” says Hugo Swart of Qualcomm, which makes chips for both headsets and phones. “I think it’s going to be bigger.”That points to the second, still more tantalising opportunity: the chance to control the next big platform. Apple and Google have established themselves as landlords of the smartphone world, taxing every purchase on their app store and setting rules on things like advertising, at the expense of companies such as Facebook, their digital tenants. Whoever wins control of the headset market stands to acquire a similarly powerful gatekeeping position. “It is going to be the next big wave of technology,” says Mr Ubrani, “and they all want to make sure they get a piece of that.”The search for the next platform comes as the latest one shows signs of maturing. Smartphone shipments in America fell from a peak of 176m units in 2017 to 153m in 2021, according to IDC. The advertising model that has powered companies like Facebook and Google is under attack from privacy advocates. In response, Mark Zuckerberg, Meta’s chief executive, has bet the future of his company on what he calls the metaverse. Microsoft’s boss, Satya Nadella, has said that extended reality will be one of three technologies that shapes the future (along with artificial intelligence and quantum computing). Sundar Pichai, his counterpart at Alphabet, Google’s corporate parent, said last year that AR would be a “major area of investment for us”. Venture-capital funds pumped nearly $2bn into extended reality in the last quarter of 2021, a record, according to Crunchbase, a data firm.Some 90% of headsets sold today are VR. Since buying Oculus, a headset-maker, for $2bn in 2014, Meta has cornered the market, with nearly 80% of VR sales by volume. Its Quest 2, which offers a convincing (if mildly nauseating) experience with no need for an accompanying computer, has been a breakthrough hit since its launch in 2020, helped by pandemic lockdowns and a $299 loss-leader price. Last Christmas the Quest’s smartphone app was the most downloaded in America. Smaller rivals like HTC, a Taiwanese electronics firm, and Valve, an American games developer, which make gaming-focused VR headsets, are being squeezed. Pico, a headset-maker owned by Bytedance, TikTok’s Chinese parent company, is doing well in its home market, where Meta is banned.Meta’s VR strategy revolves around ads, the source of Facebook’s riches. It is selling headsets as fast as it can in order to build an audience for advertisers, says George Jijiashvili of Omdia, a firm of analysts. Horizon Worlds and Venues, its virtual spaces for hanging out, claim 300,000 monthly visitors. Meta has already experimented with running ads there, to the irritation of some of them. Its forthcoming Cambria headset, a pricier “pass-through” model that combines a VR-like video screen with front-mounted cameras to display footage of the world outside, will train cameras on users’ faces. That will enable the capture of facial expressions in virtual form, as well as the monitoring of which ads eyeballs linger on.Meta is also monetising its app store. From next year the market for VR content will surpass that for VR hardware, estimates Omdia (see chart 2). One of Mr Zuckerberg’s motives for pushing the new platform is to liberate Meta from dependence on smartphone-makers for the distribution of its apps. The company has now become a digital landlord itself, with the power to tax Quest store purchases in the same way that Apple and Google take a cut of smartphone app sales (Meta declines to say how much it charges).While Meta ramps up its efforts in VR , others are experimenting with the knottier technology of AR. Unlike VR, which takes you to another place, AR is “anchored in the world around you”, says Evan Spiegel, boss of Snap. His Snapchat social-media app has long provided AR filters for smartphones, allowing users to turn themselves into cartoon characters or virtually try on products like clothes and make-up with the help of their phone’s camera. Snap is now toying with hardware, building a prototype set of AR “Spectacles” which have gone out to a few hundred software developers.Your correspondent wandered through a floating solar system and was chased around Snap’s London offices by holographic zombies as he tried out the Specs, which at 134 grams look and feel like a chunky pair of sunglasses. The downside of their slender styling is a battery life of 30 minutes and a tendency to overheat. Limits in optical technology restrict the field of view to a square in the middle of the lens, meaning that overlaid graphics are seen as if through a letterbox. Snap’s main reason for making the device is to discover use cases for AR headsets when they become widely adopted, says Mr Spiegel. In the hardware market, “We have a shot. But our goal is still really on the AR platform itself.”For now, AR glasses are a niche within a niche. Their high cost and wobbly performance limits their use to a small number of businesses. IDC expects industry shipments of 1.4m units this year. The top seller in 2021 was Microsoft’s HoloLens 2, a $3,500 device used by clients including America’s armed forces (whose order for 100,000 pairs provoked complaints from Microsoft staff that they “did not sign up to develop weapons”). Magic Leap, a Florida-based startup, will launch the second generation of its AR glasses in September, boasting a wider field of view. It, too, is targeting businesses, in industries like health care and manufacturing, rather than consumers.Despite VR’s dominance of the head space, AR is the technology that sparks most excitement about mass adoption in future. Even with Meta’s relentless promotion of virtual concerts, office meetings and more, few people use VR for anything other than gaming: 90% of the $2bn spent on VR content last year went on games, according to Omdia. Tim Cook, Apple’s boss, has criticised VR’s tendency to “isolate” the user. “There are clearly some cool niche things for VR. But it’s not profound in my view,” Mr Cook has said. “AR is profound.” Apple has shown notably little interest in the immersive metaverse that excites Mr Zuckerberg.Apple’s expected pass-through headset will give a taste of the AR experience around the end of this year, followed by a pair of true AR glasses that are still in early development. Its first products are said to be aimed at designers and other creative professionals, rather like its high-end Macintosh computers. Still, the firm’s entry into the industry could prove to be a watershed. “Apple’s ability to drive adoption is probably unparalleled in the market,” says Mark Shmulik of Bernstein. It will hope to do brisk business in China, where its rival Meta is banned. IDC predicts that in 2026 20m pairs of AR glasses could be shipped worldwide, making them about twice as popular as VR goggles are today.The big question is whether headsets can go beyond gamers and professionals, to take on the ubiquitous role that smartphones play—in other words, to become a true tech platform rather than just an accessory. Today’s headsets are good at solving “very specific pain-points”, says Tony Fadell, a former Apple executive who helped develop the iPhone. A generalisable platform such as an iPhone “is a whole different story”, he says. “And I don’t believe it,” he adds, at least for the next five years. In the foreseeable future, Mr Fadell thinks, headsets will be like smart watches, popular but not revolutionary in the way the smartphone has been.Mr Spiegel agrees that headsets will not fully replace phones, just as phones have not done away with desktop computers. But, he points out, “one overarching narrative is that computing has become way more personal”. It has moved from the mainframe, to the desktop, to the palm of the hand. The next step, he believes, is for computing to be “overlaid on the world around you” by AR. Desktop computing was mainly about information processing, and smartphones were mainly about communication. The next era of computing, he suggests, will be “experiential”.In this scenario, headsets could be part of a broader ecosystem of wearable technology that draws consumers’ attention—and spending power—away from the smartphones that have hypnotised them for the past decade and a half. With smart watches, smart earphones and, soon, smart glasses, the phone could become personal computing’s back office rather than its primary interface. Gadgets on your eyes would complement the “things on our wrists, things on our ears and things in our pockets”, says Mr Shmulik. One day, “you might even forget that you’ve got your phone.” More

WHAT DOES it take to rein in two of the biggest companies on the planet? A coalition of Swedish music-streamers, South Korean politicians and Dutch dating apps, apparently. They seem to be succeeding where America’s federal government has failed: to force changes to the way Apple and Google run their app stores.The app stores are big businesses, with combined sales last year of $133bn, three times the total five years earlier (see chart). Apple and Google take a cut of up to 30%, which is thought to contribute a fifth of the operating profits at Apple and Alphabet, Google’s parent company. The 30% levy began in Apple’s iTunes music store and was copied to its iPhone app store, launched in 2008. As people came to use their phones for gaming, streaming and much else, it evolved into a tax on digital activity. Sign up to a service like Disney+ on your phone and Apple or Google get a cut of your subscription for ever. Apps have had to use the tech duo’s payment systems, and could not tell users about other ways to sign up. Gripes from app developers have forced only minor concessions: last year Apple said it would let them link to external payment pages and Google reduced its fees for subscriptions. Now, though, the dam is bursting.Last summer South Korea banned app stores from forcing developers to use a particular payment system. In December Dutch regulators made a similar ruling against Apple, after a complaint by developers of dating apps. On March 23rd the trend went global. Google announced a deal with Spotify, a vocal critic of app-store fees, to let the music-streamer handle its own billing. Google will lower its commission rate, probably in line with the four-percentage-point cut agreed in South Korea. It says more deals are on the way.Google’s magnanimity anticipates laws that may require bigger concessions. A bill before America’s Congress would force app stores to allow payment alternatives and let apps advertise other ways to sign up. A bigger threat comes from the EU’s Digital Markets Act (DMA), approved in draft form on March 24th. The colossal bill covers various aspects of digital markets, including app stores. The DMA, which is on track to come into force next year, would force mobile platforms to allow third-party app stores and “sideloading” of apps directly from the web—something Google permits but Apple does not. Offenders face fines of up to 20% of worldwide revenue and bans on acquisitions. Breaking open walled gardens, the DMA’s proponents say, will strengthen competition.Apple’s boss, Tim Cook, has warned that sideloading would “destroy the security of the iPhone”. That is a bit much: Apple allows sideloading on its desktop computers without calamity. But Apple’s much bigger share of the mobile market could make the iPhone a juicier target for malware. And the company trades heavily on privacy and security. Despite what the authors of the DMA seem to believe, writes Benedict Evans, a tech analyst, you cannot “pass laws against trade-offs”. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Store wars” More

LUXURY BRANDS used to speak in monologues. News about their latest collections flowed one way—from the boardroom, via billboards and editorial spreads in glossy magazines, to the buyer. In the age of social media, the buyers are talking back. One group, in particular, is getting through to fashion bosses: influencers. These individuals have won large followings by reviewing, advertising and occasionally panning an assortment of wares. Their fame stems not from non-digital pursuits, as was the case with the A-list stars who used to dominate the ranks of brand ambassadors, but from savvy use of Instagram, Snapchat or TikTok. Their posts seem frivolous. Their business isn’t.For consumers, influencers are at once a walking advert and a trusted friend. For intermediaries that sit between them and brands, they are a hot commodity. For the brands’ corporate owners, they are becoming a conduit to millennial and Gen-Z consumers, who will be responsible for 70% of the $350bn or so in global spending on bling by 2025, according to Bain, a consultancy. And for regulators, they are the subject of ever closer scrutiny. On March 29th news reports surfaced that China’s paternalistic authorities are planning new curbs on how much money internet users can spend on tipping their favourite influencers, how much those influencers can earn from fans, and what they are allowed to post. Taken together, all this makes them impossible to ignore.Few reliable estimates exist of the size of the influencer industry. One in 2020 from the National Bureau of Statistics in China, where influencers gained prominence earlier than in the West, estimated its contribution to the economy at $210bn, equivalent to 1.4% of GDP. As with many things digital, the pandemic seems to have given it a fillip, as more people were glued to their smartphones more of the time.EMarketer, a firm of analysts, estimates that 75% of American marketers will spend money on influencers in 2022, up from 65% in 2020 (see chart). Brands’ global spending on influencers may reach $16bn this year, more than one in ten ad dollars spent on social media. Research and Markets, another analysis firm, reckons that in 2021 the middlemen made $10bn in revenues globally, and could be making $85bn by 2028. The ranks of firms offering influencer-related services rose by a quarter last year, to nearly 19,000.The influencer ecosystem is challenging the time-honoured tenets of luxury-brand management. Apart from being one-directional, campaigns have tended to be standardised, unchanging and expensive. An exclusive group of white actresses with the right cheekbones was supposed to signal consistency, as well as opulence. The same smile from the same photograph of the same Hollywood star would entice passers-by to purchase an item for many years. Julia Roberts and Natalie Portman have been the faces of Lancôme’s bestselling La Vie est Belle perfume and Miss Dior, respectively, for a decade. Stars and brands alike are tight-lipped about how much money changes hands, but the figures are believed to be in the millions of dollars. One report put the amount spent by LVMH on the entire Miss Dior campaign at “under $100m” in the past year.Such star-led campaigns can feel aloof to teenagers and 20-somethings who prize authenticity over timeless glamour. And influencers, with their girl- or boy-next-door charm, offer this in spades—for a fraction of the fee of a big-name star. The best ones are able to repackage a brand’s message in a way that is harmonious with their voice, their followers’ tastes and their platform of choice (Instagram is best for all-stars with over 2m followers and TikTok for niche “micro-influencers” with up to 100,000 followers and “nano-influencers” with fewer than 10,000).Influencers are particularly adept at navigating social-media platforms’ constantly evolving algorithms and features. For example, when Instagram’s algorithm seemed to begin favouring short videos (“reels”) over still images, so did many influencers. As social-media apps introduce shopping features, influencers are combining entertainment and direct salesmanship. Such “social commerce” is huge in China, where it was invented. In October 2021 Li Jiaqi, better known as Lipstick King, notched up nearly 250m views during a 12-hour streaming session in which he peddled everything from lotions to earphones ahead of Singles’ Day, that country’s annual shopping extravaganza. He and Viya, a fellow influencer, flogged $3bn-worth of goods in a day, half as much again as changes hands daily on Amazon.Many influencers manage their production in ways that traditional ambassadors never could. They are video editors, scriptwriters, lighting specialists, directors and the main talent wrapped into one. Jackie Aina, whose beauty tips attract over 7m followers across several platforms, explains the importance of high-quality equipment that can show texture, accurate colour grading—“Not to mention the lighting.” Ms Aina’s 30-second lifestyle TikToks can take hours each to make.This production value, combined with access to the influencers’ audiences, translates into value for the brands. Gauging how much value, precisely, is an inexact science. Launchmetrics, an analytics firm, tries to capture it by tracing a campaign’s visibility across print and online platforms. The resulting “media impact value” (MIV) reflects how much a brand would need to spend to gain a given degree of exposure—itself indicative of the expected return from a marketing drive. On this measure, which brands use to see how they stack up against rivals, the three-day wedding of Chiara Ferragni, an Italian with 27m Instagram followers, a fondness for pink and a Harvard Business School case study, generated a total of $36m in MIV for brands including Dior, Prada, Lancôme and Alberta Ferretti, which made the bridesmaids’ gowns. That compares with $25m for the more conventional—and almost certainly pricier—video campaign for Louis Vuitton’s autumn/winter 2021 collection for which the fashion house enlisted BTS, a hit South Korean pop group.As well as new opportunities, influencers present new risks, especially for brands whose luxury identities rely on price discipline and exclusivity. Influencer-led live-streamed shopping events in China by Louis Vuitton and Gucci were ridiculed for cheapening their brand. And full-time influencers’ large teams can run up quite a tab. Adam Knight, co-founder of TONG Global, a marketing agency with offices in London and Shanghai, notes how Lipstick King’s live-streaming success has fuelled demand for his services among brands—but also his own kingly demands. Mr Li’s fees, commissions and exclusive perks only pay for themselves if the event is a smash hit. Otherwise, Mr Knight says, the client’s profit “just completely erodes”.There are more indirect costs to consider, too. A host of younger and more unpredictable brand ambassadors is harder for brands to control than one or two superstars on exclusive contracts with good-behaviour clauses. Though influencers’ shorter contracts make them easier to replace should they step out of line, untoward antics can be costly. Before the latest clampdown Chinese authorities had already forced 20,000 influencer accounts to be taken down last year on grounds of “polluting the internet environment”. Luxury brands are reportedly cutting their influencer spending in China in response. Regulators around the world, as well as some social-media platforms, are beginning to clamp down on influencers who do not tag their content as advertorials.Such worries explain why some luxury houses are leery of influencers. Hermès, the French purveyor of scarves and Birkin bags, maintains a social-media presence that is conspicuously influencer-free. But more feel the benefits outweigh the costs. Despite Louis Vuitton’s and Gucci’s live-streaming flops, LVMH and Kering, the brands’ respective owners, continue to rely on influencers to create social-media momentum. To be a top-ten brand, says Flavio Cereda-Parini of Jefferies, an investment bank, you have to know how to play the digital game. If you don’t, “you are not going to be top ten for very long.” ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The rise of the influencer economy” More

JEFFREY SONNENFELD is having what he calls a Marshall McLuhan moment—“15 minutes of prominence soon to subside back into obscurity”. That is because, not long after Vladimir Putin sent his troops into Ukraine on February 24th, the 68-year-old professor at the Yale School of Management drew up a list of firms withdrawing from Russia, helping catalyse a stampede out of the country—470 businesses have closed or cut back operations. His campaign has generated positive media reviews. It has also put him under siege from public-relations types trying to ensure that the companies they represent do not fall into his “hall of shame”.The “Ukraine morality test”, as the New York Times called it, has dramatically raised the profile of a man already dubbed the “CEO whisperer”. Don’t believe it when he talks about returning to obscurity, though. He sees the withdrawal from Russia not just as a virtuous expression of repugnance against Mr Putin’s murderous regime. It is also a nail in the coffin of globalisation. It would be no surprise if he leads a CEO crusade against that next.Mr Sonnenfeld is no stranger to the limelight. Indeed, he has become the high priest of a belief system in Western business which he started promoting almost 45 years ago, and which has at last come into fashion. He calls it business ethics. Its critics deride it as “woke” (“as if there is something wrong with the past participle of awakening,” he harrumphs). There is nothing too woke about why Western firms are pulling out of Russia. Some might call it high-minded but in most cases it is inherently pragmatic. It pleases customers and staff who are outraged by the war, and because Russia is a tiny part of most firms’ global revenues, it is immaterial from an investor point of view.It is a slippery slope, though. Less than a year ago Mr Sonnenfeld was helping whip up scores of CEOs in America in a lather about changes to voting legislation in Georgia and other states. He has celebrated protests by business leaders over gun safety, immigration, climate change and transgender rights. He says that after the corporate pullout from Russia, his most recent powwow with chief executives revealed a sharp increase in their concerns about global supply chains, and a consensus about the need for more self-reliance. In other words, free trade may be next in line on the woke agenda. Amid applause for companies’ quick response to Russian aggression, this ethical mission creep is a worry. Where do bosses draw the line as arbiters of rights and wrongs?In an interview with your columnist, Mr Sonnenfeld elaborates on why he believes Russia’s invasion of Ukraine will mark a shift in support for globalisation. As he tells it, the era after the fall of the Berlin Wall engendered a “naive belief” that Western-style capitalism and products like McDonald’s hamburgers would usher in global harmony. Russia’s aggression has buried that notion, he reckons. Asked whether the CEOs he talks to want to change a system that has brought their firms profit, as well as helping lift parts of the world out of poverty, he says they do not want the pendulum to swing back completely to isolationism. But he discerns “diminished enthusiasm for limitless free trade”.He is not alone in thinking that the war will tilt business opinion against globalisation. In his annual letter to shareholders, Larry Fink, boss of BlackRock, the world’s biggest asset manager, said on March 24th that he expected it to prompt companies to re-evaluate their supply chains, probably leading them to bring more of their operations closer to home, even if that means higher costs and margin pressures. Such sentiments gained ground amid the Sino-American trade war during Donald Trump’s presidency, then again amid high labour costs and logistical bottlenecks of the covid-19 pandemic. For the time being, statistics that bear out large-scale reshoring are hard to find. But some anecdotal evidence of it is popping up.That may reflect nothing more than business pragmatism in action. More and better automation helps offset the higher wages in developed countries while reducing transport costs. As countries divide themselves into opposing camps, with China and Russia on one side and America and Europe on the other, their governments may encourage firms to invest domestically in vital technologies such as semiconductors to bolster security of supply. If domestic demand for firms’ goods is increasing, or being subsidised, it makes sense for them to meet it. Moreover, pressure by investors to put more focus on environmental, social and governance concerns may spur Western companies to think twice about having extended supply chains in hard-to-monitor places.Autocrats in the C-suiteBut when businesses wrap themselves in the flag, rather than standing up for pragmatism (and profits), things become more complicated. As bosses are no doubt aware, when pulling out of Russia, they are leaving the field open to local competitors with no qualms about supporting Mr Putin’s regime. They are abandoning Russian employees who may oppose their government. And their crowd-pleasing stance in Russia may help distract attention from other harmful externalities they are responsible for, such as the carbon footprints of their businesses. As with all ideological positions, there is a kaleidoscope of ways of looking at them.Then there is democracy itself. Mr Sonnenfeld argues that companies are a rare force pressing for social and political change in Western society today. He sees the corporate campaign against Mr Putin’s regime in the same light as divestment from South Africa in the 1980s, which he argues helped bring about the end of apartheid. By being good citizens, firms are upholding and enforcing democratic values. Yet the idea of an unrepresentative coterie of unelected executives making moral choices on behalf of customers and employees could undermine faith in democracy, not shore it up. In a world at risk from autocracies like Russia, that would be a crushing own goal. ■Read more from Schumpeter, our columnist on global business:Why Saudi Aramco could be eclipsed by its Qatari nemesis (Mar 26th)Has Silicon Valley lost its monopoly over global tech? (Mar 19th)It’s not easy being an oligarch (Mar 12th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “War and wokery” More

IN THE HEYDAY of Vietnam’s communist economy, comrades could expect their health care, education, housing and entertainment to be provided by the government. In the freeish-market Vietnam of today, those necessities are still purveyed by one dominant entity, albeit a capitalist one. Vingroup, the country’s biggest conglomerate, and its two listed subsidiaries, Vinhomes (a property developer) and Vincom Retail (which offers other real-estate services), jointly make up 28% of free-float shares in Vietnam’s stockmarket index (see chart). Their revenues are equivalent to nearly 2% of Vietnamese GDP.Having made Vingroup into a dominant force at home, its founder and chairman, Pham Nhat Vuong, now wants to turn it into a household name abroad. In December the group announced plans to list VinFast, its electric-car division, in America this year, to open showrooms across the West, and to sell 42,000 electric vehicles (EVs) globally in 2022, up from a previous goal of 15,000. On March 29th, in the most audacious move yet, VinFast said it would invest $2bn in its first foreign factory, to be built in North Carolina with capacity to make 150,000 EVs a year.That is quite a ride for a firm that began life in 1993 making instant noodles in Ukraine, where Mr Vuong found himself after studying geological engineering in the Soviet Union. He subsequently expanded operations to his home country and in 2010 sold the Ukrainian business to Nestlé, a Swiss food giant, for a reported $150m. The Vietnamese arm became Vingroup. It has been accruing business lines ever since, turning Mr Vuong, who retains a majority stake in the parent company, into Vietnam’s richest man.Between 2011 and 2021 Vingroup’s revenues exploded nearly 50-fold, to more than $5bn. Gross operating profit has ballooned ten-fold in the past decade, to around $800m. Vingroup’s share price is also 50 times what it was at its initial public offering in 2007. It spun off Vincom Retail in 2017 and Vinhomes a year later, retaining majority stakes in both. These lucrative property businesses generate most of the parent company’s profits.Now Vingroup wants more to come from techier sectors, says Le Thi Thu Thuy, Mr Vuong’s deputy at Vingroup and CEO of VinFast. In particular, the company is eyeing EVs. To that end, the group is rejigging its industrial divisions. Last year it wound down VinSmart, an unlisted subsidiary that had grabbed just over 10% of the domestic smartphone market with its own models, and launched two new EV-focused high-tech ventures: Vin ES, a battery-making subsidiary, and Vin AI, a machine-learning arm which is led by a former researcher at DeepMind, Google’s artificial-intelligence unit, and whose task is to develop self-driving technology. As part of the electric shift VinFast will also stop making petrol-driven vehicles by the end of this year.The plan is to conquer the global EV market with snazzy new models—and a crafty new business model. VinFast will sell cars while leasing their batteries, which account for a large chunk of an EV’s cost. That lowers the sticker price, as well as alleviating concerns about long-term decline in range as batteries degrade (the company will replace those which no longer recharge adequately). VinFast’s $41,000 VF8 is one of the cheapest electric SUVs around, even after you factor in the $100 or so monthly battery payments.Vietnam’s president, Nguyen Xuan Phuc, whom Mr Vuong took for a spin in a VF8 at VinFast’s factory in Haiphong earlier this year, certainly looked impressed. Afterwards Mr Phuc reiterated just how Vingroup’s business objectives dovetail with the government’s economic goals. These include the creation of large, internationally competitive conglomerates in the mould of South Korean chaebol such as Samsung. No Vietnamese company fits the bill better than Vingroup.Ambition does not, though, guarantee success. Vingroup’s industrial businesses, of which carmaking is by far the biggest, recorded a net loss of about $1bn last year. Chris Robinson of Lux Research, an analysis firm, is sceptical about VinFast’s ability to compete with established carmakers like Volkswagen, which is ploughing billions into affordable EVs, or Tesla, the industry superstar. He reckons VinFast will struggle to win a big market share outside South-East Asia. Wall Street’s enthusiasm for upstart EV firms has chilled of late in America, which could dash VinFast’s hopes for a blockbuster New York listing. The world’s motorists and investors may prove harder to impress than Mr Phuc. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Born to Vin” More

MANAGEMENT ENTAILS some unpleasant conversations, none worse than telling employees that they have lost their jobs. There is nothing enjoyable about giving people this kind of news. But it can be done well or it can be done badly—or it can be done in the style of Peter Hebblethwaite.Mr Hebblethwaite is the chief executive of P&O Ferries, a ferry operator that carries passengers and freight between Britain and continental Europe. On March 17th the company told almost 800 of its workers on a video call that they were being replaced with immediate effect by cheaper foreign contractors. Security guards were on hand to escort the dismissed workers from the ships.On March 24th Mr Hebblethwaite was hauled in front of a committee of British MPs to explain himself. “Are you in this mess because you don’t know what you’re doing, or are you just a shameless criminal?” was the first question. And that was before he made them really angry. He admitted he had not seen a safety-risk assessment into the implications of replacing the original crews with agency workers (two of the affected vessels have subsequently been held in port because of safety concerns). He openly acknowledged that the firm had broken the law by not consulting on the dismissals with trade unions, but that he would make the same decision again because the unions would never have agreed to the plans.If you want to know what slack-jawed astonishment looks like, watch someone telling legislators that the law is not worth following. But what if you take Mr Hebblethwaite at his word—that the business was unsustainable and that the firm faced a choice between cutting some jobs immediately and losing them all? This is a kind of managerial “trolleyology”, the name given to a set of moral thought experiments involving a runaway railway carriage that is careering towards a group of people. In these experiments participants are asked whether they would intervene and sacrifice someone else in order to save the lives of others. Dismissing workers in order to save more jobs is the workplace version of this problem.The Hebblethwaite approach to managerial trolleyology is a simple matter of accounting: saving 3,000 jobs is worth the loss of 800 workers. That meant moving fast, and not bothering with niceties like following the law or affording people due process or dignity.But the point of trolleyology is that the brute logic of numbers often conflicts with moral intuitions. Ethical considerations can involve nuances of behaviour, not just outcomes. For example, people are much more willing to switch train tracks so the runaway carriage collides with someone else than they are to push someone off a bridge into the path of the train in order to slow it down.In managerial trolleyology, too, behaviour matters—even to staunch utilitarians. It makes a difference how people are treated when they lose their jobs, and not just to those who are out of work. Callousness affects the morale of those who are left behind: recent research suggests that a toxic corporate culture is more likely to lead to employee attrition than any other factor. How firms handle redundancies also sends signals to prospective employees, customers and investors. Airbnb chose to publish the memo that Brian Chesky, its boss, sent to employees in May 2020, in which he used a blend of compassion and commercial logic to explain his decision to cut 25% of the workforce.Displays of humanity can be good for the share price. A new study, from academics at the University of Zurich, the London School of Economics and Judge Business School at the University of Cambridge, looks at how chief executives responded to the outbreak of covid-19 in early 2020. The authors review transcripts of investor calls in which bosses discussed the pandemic, and find that whereas virtually all of them referred to its economic impact, only about half of them mentioned the human costs. The share prices of firms run by the more compassionate-sounding bigwigs outperformed the others in the early stages of the crisis and well beyond.Every situation is different. The P&O debacle reflects specific aspects of maritime employment law, for example. But if you want a steer on how to handle mass redundancies, Mr Hebblethwaite does not provide it. Managers routinely have to make tough decisions about letting workers go. Whether to show some common decency in the process is not one of the harder ones.Read more from Bartleby, our columnist on management and work:What an honest leaving-do speech would sound like (Mar 26th)Why loafing can be work (Mar 19th)The return of the crowded office (Mar 12th)For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Managerial trolleyology” More

TWO DECADES ago India’s information-technology (IT) firms were the stars of the rising country’s corporate firmament. The industry’s three giants, Tata Consultancy Services (TCS), Infosys and Wipro, became household names at home and familiar to chief executives of big businesses abroad, who had outsourced their companies’ countermeasures against the feared “millennium bug”, expected to wreak havoc on computers as the date changed from 1999 to 2000, to Indian software engineers. By the mid-2000s the Indian IT trio’s revenues were growing by around 40% a year, as Western CEOs realised that Indian programmers could do as good a job as domestic ones or better, at a fraction of the price. Then, following the global financial crisis of 2007-09, revenue growth slowed to single digits. For years afterwards the stars seemed to be losing some of their shine.Now they are back in the ascendant. Having declined as a share of GDP between 2017 and 2019, exports of Indian software services ticked up again as the world’s companies turned to them for help amid the disruption to operations and IT systems wrought by the pandemic. In the last financial year they reached an all-time high of $150bn, or 5.6% of Indian GDP (see chart 1). NASSCOM, a trade body, expects the industry’s overall revenues to grow from $227bn last year to $350bn by 2026.In the 12 months to March sales at TCS, Infosys and Wipro are once again forecast to grow by double digits (see chart 2)—this time from a much higher base than 20 years ago. All told, they could rake in nearly $60bn next year, up from just over $40bn in 2019 (see chart 3). In the past two years they have added an astonishing 200,000 or so people to their combined workforce, which now numbers nearly 1.1m. Add the Indian businesses of big Western IT-services firms such Cognizant (which is based in New Jersey but India-focused), IBM and Capgemini, as well as smaller Indian rivals and around 1,600 “captives”, as in-house Indian operations of foreign firms are known, and the headcount rises to 5m.More important, both revenues and ranks of Indian IT look poised to keep growing briskly. Lalit Ahuja, who runs a firm that helps to set up captives, says a new one opens every other week. TCS, the industry’s brightest star, reckons that its sales will rise from nearly $30bn today to $50bn before 2030. It is eyeing 1m employees. Infosys and Wipro have comparable ambitions. And investors are buying it. The market value of the big three has doubled to $330bn since covid-19 first emerged. With the addition Cognizant and Tech Mahindra, another Indian firm, the figure is around $400bn (see chart 4). This represents a huge bet on the future of white-collar jobs.Three global forces lie behind Indian IT’s sparkling outlook. All manner of businesses are digitising ever more of their operations. They are moving more activities to the computing cloud. And work is becoming more remote. India’s low-cost, competent coders can help with all three.Start with digitisation. The pandemic has turbocharged efforts by companies of all stripes to make their businesses more agile, efficient and clever. Retailers have introduced kerbside pickup. Clinics have launched digital doctor’s appointments. Schools have run online classes. Factories have been kitted out with sensors to allow remote monitoring in the absence of workers, locked down at home. Data from covid-19 vaccine trials have needed analysing. All these innovations required sophisticated software. A lot if it has been developed in India since early 2020. And there is more to come. Among Infosys’s many projects are several connected to electric cars (for example software for the vehicles themselves and for petrol stations to offer charging). It is helping a Western retailer expand into health care and financial services.The corporate great migration to the cloud offers further opportunities. According to Anuj Kadyan of McKinsey, a consultancy, big ones include supervising the migration itself for clients, ensuring that the new cloud operations are cyber-secure and adding advanced cloud-based data analytics and artificial intelligence (AI) on top. Earlier this year JPMorgan Chase, an American bank, announced it would add 6,000 people to its substantial Indian business to work on the cloud, cyber-security and AI. IBM has opened a cyber-security centre in India to cater to its Asian clients.Combined, digitisation and the cloud make it possible for companies to untether from their physical headquarters not just peripheral functions but parts of their ever more digital core business. Many have done just that during the pandemic, thanks to remote work. This opens up the third opportunity for India’s IT consultants. They could assume some of the core corporate roles from white-collar workers in the rich world. Wages for new hires in India can be as little as $5,000 annually, less than a tenth of the going rate in rich countries. Even with associated cost, Indian projects cost at least 20% less than the same endeavours in the West, estimates Peter Bendor-Samuel, boss of the Everest Group, a management consultancy.A ballooning Indian “talent cloud”, as TCS calls it, is the biggest opportunity of all. It is also the most uncertain. For one thing, some Western companies are having second thoughts about hybrid work (which requires at least partial presence in the office), let alone the fully remote sort. Indian wages are also beginning to rise. India’s IT giants and captives are competing for the best and brightest among themselves, as well as with a vibrant startup scene. McKinsey estimates that compensation costs have risen by 20-30% over the past year. Company executives say it is not uncommon for employees to ask for their wages to be doubled. Attrition at the big firms has spiked.As the nature of outsourced work changes, the Indian advantage may erode further. It is easier for clients to outsource standardised assignments on the periphery of corporate functions to faraway India. It is harder to do so for high-value projects at the heart of their business, which require constant communication, continuity and confidentiality. For these reasons, proximity matters. At the very least, it means being in the same time zone as your client. Infosys and TCS now operate in more than 40 countries. Infosys now has more than 30 outposts across America and is building a new $245m campus in Indianapolis. Mr Kumar’s own job has relocated from Bengaluru to New York. Infosys plans to add 10,000 American workers in the next few years, bringing the total to 35,000. “We needed capacity closer to the customers,” explains Ravi Kumar, who oversees Infosys’s global services business.Still, India accounts for the bulk of its IT firms’ workforce. Although the companies are cagey about where their employees are based, securities filings by Infosys and Cognizant show that, give or take, three-quarters of staff are based in India. If India’s entire IT industry grew at the same rate as TCS, more or less doubling its workforce this decade, that could mean nearly 5m new Indian white-collar jobs—and potentially 5m fewer in the West.This points to a final hurdle. Amid supply-chain disruptions from the pandemic, now compounded by Russia’s war in Ukraine, and a geostrategic contest with China, Western politicians are in a protectionist mood. Few would relish millions of well-paid positions moving to India on their watch. Critical visas that once allowed the Indian firms to send star employees aboard to work directly with clients have already grown harder to come by, forcing these positions to be filled locally. Although data can in theory be stored and analysed anywhere, governments are increasingly keen to limit cross-border information flows, often invoking national security. By building a few more campuses in Western countries India’s IT titans may alleviate some of those concerns. They are unlikely to make them disappear. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

“SNATCH GROCERIES first, then get a covid test” has quickly become an anthem for the lockdown that started suddenly in Shanghai in the early hours of March 28th. Local hip-hop artists CATI2, P.J. and Keyso describe scenes of panic buying—qiang cai, or snatching groceries—and the threat of being locked out of one’s home amid a frenzied bid to control an outbreak of covid-19 in China’s main business and finance hub. One lyric hints that residents can grow vegetables in the small patches of land outside their apartments or scavenge for edible plants.The song has attracted hundreds of thousands of views online in less than a day, bringing some cheer to an otherwise grim situation. China is currently facing its worst outbreak since the pandemic started in the city of Wuhan in 2020. Thousands of new cases of the highly transmissible Omicron variant are now being discovered each day. The large cities of Shenzhen and Shenyang, as well as the entire province of Jilin, have been locked down in recent weeks.On March 28th it was Shanghai’s turn. The two-phase lockdown of the city, whose 26m inhabitants have been mostly spared harsh containment efforts over the past two years, was announced only hours before it began at 5am that morning. The local government had gone to great lengths to avoid shutting down the metropolis, especially its wealthy central districts. Now that these are under quarantine, it will find it difficult to present an image of business as usual—chiefly because business is anything but.The lockdown’s first phase covers areas east of Huangpu river, home to the main financial centre (and the city’s iconic skyline). Many white-collar workers have packed up toiletry bags and moved into their offices until April 1st, when the lockdown is supposed to be lifted in the east and imposed instead in western neighbourhoods. In order to keep the stock exchange running, employees are said to be sleeping on the floor of the bourse. Countless companies listed in Shanghai have put out statements in recent days to notify investors that they are shutting down their factories in the region and, in some cases, elsewhere in the country. Tesla is suspending production at its electric-car factory in the city, according to Reuters.The pain will be felt abroad, too, just as it was amid the lockdowns in Shenzhen, another city deeply entangled in global supply chains. Although seaborne traffic can be diverted from Shanghai to other ports, such as Ningbo around 100km to the south, the cross-border flow of people is being disrupted. International flights have been rerouted to airports in other cities. Shanghai’s tourism businesses are bracing for a year that will be even worse than 2020.The situation will further dent business sentiment already knocked by smaller-scale rolling lockdowns, laments a foreign fund manager, who has been stuck home for weeks. China’s purchasing managers’ index for emerging industries, such as green technology and biotech, recorded a sharp drop in March, compared with February. It was the worst reading since the index was launched in 2014.Regardless of its precise economic cost, which will only become apparent with time, the Shanghai lockdown is the biggest test yet of China’s draconian “zero-covid” approach to snuffing out the virus. Admittedly, Chinese authorities have shown an ability to learn and adapt to the virus. Shanghainese officials are borrowing from their counterparts in Shenzhen and experimenting with “production bubbles”, which involve busing workers to and from factories in a covid-controlled manner. Some big companies, including Foxconn, a giant contract manufacturer that assembles iPhones for Apple, have pulled this off. If such ruses work, China may be able to cling to its zero-covid approach for longer. If they fail—as they well might given Omicron’s extraordinary transmissibility—the authorities will come under growing pressure to relent. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More